It would be easy to chuckle at this and just "go along", but doing so would be a mistake.

This is the lesson we should all be taking as the Dow Jones Industrial average closes at yet another record. It's the lesson of how Wall Street traversed the Great Recession, after it survived (and thrived) past Washington-ameliorated crises such as the collapse of Long Term Capital Management and the Savings & Loan imbroglio. You could -- should -- shake your fist at all the bailouts; the record bank profits that are once again accruing to shareholders and executives; the asymmetry of rescuing now impossibly large institutions when so many individuals had to mail back the keys to their homes. But, in 20/20 hindsight, it was also smart to hedge that runaway cynicism with confidence that the system would take care of itself.

In a word, bullcrap.

Ask Bernie Madoff's (or Stanford's) clients how that worked out for them, because it will work out the same for you if you stick around too long, and you will.

It would be nice if this was not true, but it always is.  You are never privvy to the real inside information -- only the fake stuff.  Madoff's clients assumed that he was trading on inside information, which is how he managed to beat everyone else.  Stanford's clients assumed he had figured out how to game tax and investment laws via various offshore entities -- they couldn't figure out how he was doing it, and assumed he was simply smarter than them.

Neither, of course, were doing what their investors assumed was the reason for their success.

The same is true here.  You are free to assume if you wish that this "rigging" is benign and will succeed forever, but history says it never does.  History also says that the means by which you think the game is being rigged is at best partially true and at worst entirely false.

When the "subprime" mess exploded the first indication I had was in the form of Washington Mutual paying dividends with money they didn't have -- capitalized interest that hadn't (and ultimately never would be) collected.  I sounded the alarm loud and long, and was laughed at for over a year.  Those who laughed ultimately cried.

Now we have a market that is levitating on alleged "profits" that are driven by artificially suppressed rates and borrowing costs that will have to eventually be rolled over at much higher expense.  The S&P has allegedly "great profits" but the debt levels of those firms have gone up dramatically since 2007 -- and that debt will have to be serviced forever, as there has been no paying it down thus far and by the time people think to do so, it will be too late.  Right now it's cheap -- but it won't always be cheap unless the economy never recovers (in which case those "forward profit projections" will collapse!)  

Heads you lose, tails you lose more.

But..... when?

Well, ask the people who bet at intrade about that.  Allegedly there are "financial irregularities" and the site has been shut, with everyone's positions liquidated to cash.  Of course the next question, since you can't take it out, is obvious: Is the cash you posted as margin and claimed to be "in your account" really there?  

Heh, haven't we seen that story before in the not-so-distant past?

It's always amusing to listen to the folks talk about "unsustainable" things with this level of wistfulness in their eyes, as if there's some future fix that they'll apply before the great blowup happens, and all will be fine.  History says that's not what comes to pass -- instead they all play Chuck Prince, telling us that while the music is playing you must get up and dance, and invariably only a few people are close enough to the door to get through when the curtains are observed to be on fire -- everyone else suffocates or is burned to a crisp in the conflagration.

Don't be crispy.